When we step back and review companies in the
power sector, at first it’s difficult to come up with a concrete
list of success strategies that broadly apply to all players.

After all, what do investor-owned utilities, independent
power companies, and capital providers (funds, banks) in this
sector truly have in common other than their focus on energy.

Let’s say 1978 was the baseline year for growth in this
sector. In that year the Public Utility Regulatory Act (PURPA)
passed and, as a result, companies other than utilities could
now own and operate power plants. In those early years,
firms like AES Corporation were established (1981) as well
as Calpine (1984).

Over the last 38 years, we’ve experienced various
trends in the power sector, some of which
include the global expansion of many
organizations, the restructuring that
ensued after the collapse of Enron,
the rise of renewable energy,
and now most recently, the
development of gas-fired
power plants.

We have noticed
that companies that have
experienced long periods of
success share many common
qualities. Some readers might
disagree, or ascribe a firm’s
success as mere luck. Here
are the five enduring qualities of
successful companies in the power
sector:

1. Evolve or die

If you had told participants at the 1992 Platts Global Power
Markets Conference in New Orleans that in five years they
would be developing power plants in Colombia and China,
they would have laughed. And if you told this group in 2000
that Enron would declare bankruptcy in 12 months or that
most of them would be working on wind deals in some form
or fashion by 2007, they would probably call security. And if
you told the same crowd in 2009 that many of them would
be involved in gas-fired projects in 2015, they would all run
out of the room. The only constant for the last 35 years has
been change.

2. Renewables are now “a fact of life”

David Crane, longtime CEO of NRG, said this several
years ago. Let’s face it, whether or not you believe in global
warming, most people think it’s important to reduce air
pollution. On the wrong side of this issue were companies
that stubbornly tried to keep championing coal-based power
generation. Currently, coal production is down to 1986 levels
and that industry is struggling. Renewables are here to stay.

3. Buy, sell, repeat

The power sector goes through cycles as much as other
industries, like real estate. A new trend emerges, capital flows
in, and new companies are established on a weekly
basis. But eventually markets become frothy
and highly competitive. This can trigger
leadership teams to take advantage
of valuations and sell off assets at
peak value.

4. “I have a bad feelingabout this.”

Han Solo and others have
uttered this prophetic
statement. How does it
apply to the power sector?
It applies with respect to
decision making. Aggressively
expanding worldwide in
multiple verticals while acquiring
other companies has caused some
to question SunEdison’s strategy. It’s
fair to say that most solar industry veterans
regard First Solar as a business that has had it
made. In contrast, other companies like Duke and Florida
Power & Light have made steady, successful decisions.

5. There is no “I” in team but there is in win

No one is suggesting that Michael Jordan (above quote is
attributed to him) become CEO of a power company, but in
our own way we’ve had visionary leaders over the last 35
years. They include Pete Cartwright (Calpine), Dennis Bakke
and Roger Sant (both at AES) and countless others. AES’
revenues in recent years have been over $17 billion and has
operations in over 29 countries and over 30,000 employees.